ESG is a core piece of the value corporate counsel can bring to a business, writes Andrew McLaughlin
As more and more Canadian in-house counsel lead organizations on their ESG journeys through the Covid-era, we should be comparing travel notes, while helping others get out of the starting gates.
In 2020, I published the article “An ESG Roadmap for In-House Counsel” as we embarked on formalizing our ESG Roadmap at Major Drilling. In that piece, I made the case for legal departments to lead on this increasingly critical aspect of an organization’s core operations. As we’re now a year into this journey, it’s a useful waypoint to reflect on how far we’ve come and to contemplate the long journey ahead.
Embarking on this journey in the midst of a global pandemic means we’ve had to quickly shift to the fast lane - as the role of the corporation has come under deeper focus (e.g., employee safety, diversity and fair wages). Against this backdrop, the growing momentum of the ESG movement that has pervaded the public markets in recent years has reached a tipping point – and has now entered the mainstream. Public companies that previously saw embedding ESG and sustainability practices into their business as a “nice to have” are increasingly realizing it’s a “must have,” as their customers, investors and supply chains are demanding it—at the risk of putting their money elsewhere. For us, an investor call or pitch to a potential client without an ESG-angle would be almost unheard of in 2021.
In the first year implementing our global ESG Framework, we’ve put in place many of the key pieces, including: adopting an ESG Policy; establishing an ESG Committee made up of a diverse cross-section of operational and technical experts; launching an ESG Page on Major Drilling’s corporate website; building on our annual GHG emissions submission to the CDP; and developing systems to monitor our ESG efforts around the world. As we peer over the horizon in an industry that’s entered a long awaited upcycle, we’re seeing exciting opportunities in the future economy. Foremost among these is serving as a key part of the supply chain for powering electric vehicles (e.g. copper, lithium).
Navigating the Headwinds:
The mining industry has checkered performance on ESG, with great strides being made in some cases, and serious problems arising in others. In many ways, it’s still a very traditional industry. While traveling on the ESG journey in this context presents its own set of unique challenges, there are undoubtedly some broader concerns experienced across sectors, such as:
- Cultural Transitions: It’s been clear from day one that getting buy-in on ESG (i.e., the importance of embedding ESG considerations into our core operations) is the linchpin for successful implementation. While I’m encouraged by many who see ESG as a crucial piece for our future as a company, admittedly, that feeling isn’t universal - and that’s to be expected. Some still see this simply as a box-ticking exercise for investors and certain clients, rather than having a genuine belief that this is necessary for the company’s viability into the future (and, more fundamentally, that it’s just the right thing to do!). Like the cultural change that was required decades ago on the health and safety front as drillers shifted from showing up on site in ball-caps and sneakers to hard hats and other PPE, a similar transition period is required here. Change management is a central challenge in such a transition, and our ESG Committee is charged with finding ways to facilitate this cultural shift and to build awareness and credibility of ESG efforts at all levels of the organization. Calibrating the appropriate pace of change is a constant consideration, and involves a delicate balance between setting ambitious goals and priorities, while accounting for operational realities. Strong tone from the top and executive leadership on ESG must be front and centre in tackling this challenge.
- The Wild West of Reporting Standards: Trying to navigate the labyrinth of ESG reporting standards is a daunting task. Much ink has been spilled disparaging the oft-cited “alphabet soup” of multiple reporting standards (SASB, GRI, TCFD, etc.), highlighting the urgent need for consolidation and clarity. Unfortunately, this convoluted landscape has put a drag on the otherwise incredible momentum of ESG. Moreover, even the most well-known ESG ratings agencies often miss the mark. For example, the industry classifications they assign to our business often mischaracterize our actual risk landscape – applying a host of criteria that have no bearing in our context. Yes, we operate in the mining industry, but our business (a contractor providing drilling services, i.e. rigs and drillers) has a fundamentally different risk profile than a mine (often a landowner with extensive on-site operations) -- and yet we’re both assessed against a set of factors that was clearly designed with the operating mine context in mind. Worse still, some ratings agencies have lumped us in with comparator peer groups where there is no discernible correlation at all.
- Cracks emerge between the actions and words of the ESG vanguard: While the “alphabet soup” of reporting requirements puts a drag on ESG momentum, the apparent disconnect between the actions and words of ESG’s leading proponents has the potential to undercut the movement altogether. For example, Larry Fink, the CEO of BlackRock and perhaps the highest profile ESG advocate in the public markets, has laid out an ambitious call to action on sustainability and climate risk in his famous annual letters to CEOs, while positioning these as central tenets of the asset manager’s investment strategy. Meanwhile, his firm has recently been called out for on the one hand, supporting shareholder protests against Proctor & Gamble’s sourcing of palm oil from an Indonesian company accused of seizing land from local farmers, while maintaining a significant investment stake in that same Indonesian company. While BlackRock’s sheer size means that such stumbles are perhaps likely to occur on occasion, such inconsistencies have an outsized impact - discrediting the movement more broadly. Leading firms in this space need to be highly cognizant of aligning their words with their actions as the ESG movement matures and becomes an evermore ubiquitous feature of modern business.
- ESG is an over-hyped buzzword: Anyone who has embarked on an ESG journey with their organization has likely come across this sentiment. In my case, it was an individual I respect greatly who scoffed at the hoopla around ESG, stating that “it’s just about doing what’s right”. While there’s more than a little truth to that sentiment, it’s not especially helpful. The value of the ESG lens is that it provides structure and discipline – focusing the mind on what an organization should be doing, how they should be tracking progress, and how their concept of “what’s right” aligns with broader stakeholder views.
There’s bound to be more choppy waters ahead as the ESG movement enters the mainstream. What’s needed is a steady hand at the wheel. More and more, legal teams across the country are stepping up to this challenge – leading the charge on ESG. As this increasingly becomes a core piece of the value corporate counsel can bring to our organizations, it’s more important than ever for the in-house bar to share its travel notes and reflections on this journey, in the spirit of advancing the conversation among our fellow travellers.